At the Close: Stalemate Staggers Stocks as Dow Drops 130 Points

By Ben Levisohn

One of the downsides–or benefits–of having young kids is all the picture books you have to read. And with their short, pithy sentences and simple cadences, the words and the rhythm of the market often get lodged deep in my brain.

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Case in point: When looking at today’s market and thinking about what to write, the phrase that popped into my head was: “This is not a happy market.”

The S&P 500 dropped 0.9% to 1,676.12, while the Dow Jones Industrial Average fell 0.9% to 14,936.24

Ameriprise Financial’s David Joy explains why the situation in Washington could get worse:

The likelihood of a default still seems remote, but only so because the underlying assumption is: Politicians cannot possibly be foolish enough to let that happen, can they? However, it cannot be dismissed entirely. Treasury has warned that a default would be catastrophic, but there is certainly a healthy dose of partisanship in their assessment…

So far, the market reaction to the shutdown has been fairly muted…However, such relative complacency is unlikely to prevail should the political stalemate persist. Indeed, in early trading on Monday, the S&P 500 was sharply lower and the ten-year yield was down four basis points, as last week’s benign reaction started to wash away. Overseas markets also traded lower as the world scratches its head at the standoff in Washington.

BlackRock’s Russ Koesterich warns investors not to expect the calm to last, even when a deal is reached:

Looking ahead, we still expect that a deal on the debt ceiling will be reached in time, but given the prevailing level of acrimony, it is hard to imagine a comprehensive, long-lasting solution. Instead, it seems more likely that the best Washington will manage will be some sort of temporary patch that keeps the drama going. As such, political uncertainty is likely to remain high, pushing market volatility higher than it would otherwise be.

J.P. Morgan Chase (JPM) dropped 1.6% to $51.83 ahead of Friday’s earnings announcement and indications that it would fight the CFTC over the “London Whale.”

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